COUNCIL OF THE CITY OF PHILADELPHIA COMMITTEE OF THE WHOLE - - - Room 400, City Hall Philadelphia, Pennsylvania Wednesday, March 31, 2010 10:20 a.m. - - - PRESENT: COUNCIL PRESIDENT ANNA C. VERNA COUNCILWOMAN JANNIE BLACKWELL COUNCILMAN W. WILSON GOODE, JR. COUNCILMAN BILL GREEN COUNCILMAN WILLIAM GREENLEE COUNCILWOMAN JOAN L. KRAJEWSKI COUNCILWOMAN DONNA REED MILLER COUNCILWOMAN MARIAN B. TASCO BILLS 100115, 100116, 100117, 100118, 100131 and 100141 - - - 2
Good morning, everyone. This is a continued public hearing of the Committee of the Whole. Our first department to testify? MR. McPHERSON: Is the Board of Pensions. (Witnesses approached witness table.)
Good morning. Mr. Kidwell, what will we ever do without you?
Thank you very much, and I enjoyed every day of it, all 40 years and nine months.
Well, we certainly want to thank you and we wish you luck with your future endeavors.
Thank you. Please identify yourself for the record and proceed with your testimony.
James Kidwell, Acting Executive Director, Philadelphia Board of Pensions and Retirement. MR. McDONOUGH: Chris McDonough, Chief Investment Officer.
Good morning, Council President Verna and members of City Council. My name is James Kidwell and I am the Acting Director of the Board of Pensions and Retirement. Chris McDonough, Chief Investment Officer, is here with me today. The Board of Pensions and Retirement has submitted a budget request for FY2011 for 11,420,000, which is an increase of 816,000 over the Board's FY10 request. The components of this increase are $201,000 for payroll; 412,000 for fringe benefits, which is the result of 4 3/31/10 - WHOLE - BILL 100115, etc. 3 percent in FY09; 203,000 for professional services, of which 104,000 result from the Board being legally obligated by the State to pay the expenses of the Special Pension Commission created by Act 44. Employee compensation for Class 100, personal services, is $4,101,000 and 2,386,000 for fringe benefits. We have budgeted 4,131,000 in Class 200 for purchase of services. We estimate we will need 142 in Class 300 for material and supplies, 460,000 in Class 400 for equipment, and 200,000 in Class 800 for payments to other funds, for a total of 11,420,000. The Fiscal Year 2011 budget contains funding for 79 positions that service more than 64,000 participants, an increase of one position over our current staffing level. This additional position is being funded by the Board at the request of the Division of Technology, 5 3/31/10 - WHOLE - BILL 100115, etc. which provides IT services to the Board. This position will provide full-time support to design, program, test, implement and maintain the pension systems and other applications to support the business processes of the Board of Pensions. The requirements include business analysis expertise and end-user interface and support. There were 1,341 retirements and 1,356 withdrawals from the Pension Fund during FY09. To date in FY10, there have been 1,096 retirements and 1,024 withdrawals. There were 798 enrollees in DROP in FY09 and 392 to date in FY10. The Board received 144 applications for service-connected disability benefits during FY09, 82 of which were approved. The Board of Pensions is committed to supporting the Administration's goal of percent 23 minority, woman and disabled-owned 24 business participation in City 25 contracting. Fees paid for managing the 6 3/31/10 - WHOLE - BILL 100115, etc. Board's investments are asset based and can vary greatly depending on the change of asset levels, making fees for FY10 and FY11 difficult to project. 8 percent of the fees paid for managing the Board's investments. 6 for FY11. Retirement workshops continue to be well attended to the capacity of 50 persons per session. There are ten retirement sessions per year. E. program has been in place for four years and continues to receive participation on the average of 40 per session. These sessions continue to be offered to 7 3/31/10 - WHOLE - BILL 100115, etc. employees who are not yet eligible to retire, but who are vested. The minimum age for participation is 35. The Board plans to initiate an educational program for new employees during FY11. This program will include presentations on both the defined benefit and deferred compensation plans and will be developed as needed to include future revisions to the Pension Code. The deferred compensation plan is currently administered by ICMA-RC. Their representatives now offer educational programs at the Board's training facility, as well as on-site seminars in various City departments and scheduled meetings with newly appointed employees. E. seminars. In FY09, 1,093 employees enrolled in this plan. To date in FY10, there have been 730 new enrollees. Total employee enrollment in this plan was 8 3/31/10 - WHOLE - BILL 100115, etc. 14,292 as of February 28, 2010. The Board of Pensions has now imaged all active and vested files and 75 percent of the retiree files, and now images all incoming mail.
The Board's imaging system allows staff to access from their desktops the records of employees, retirees and survivors and provide an immediate response to most inquiries. The Department of Technology is working with Pension staff to develop an Active Pension Database. The Division of Technology is assessing the current pension payroll system to determine the best solution for replacement. In the interim, a Pension Active Database will be developed with the assistance of DOT. MR. 6 percent for the fiscal year ending June 30, 2009. The return placed the fund in the second quartile among public funds with assets over a billion dollars. Based on 9 3/31/10 - WHOLE - BILL 100115, etc. 3 percent and the funding ratio was 45 percent, down from 55 percent as of June 30, 2008. The Fund's performance has rebounded dramatically since March 2009. 3 percent. The Board has made a significant commitment to ensure that women and minority-owned firms are afforded opportunities to compete for and manage Pension Fund assets. As of June 30, 2009, women and minority-owned firms managed over $700 million of the Fund's assets. This equates to 21 percent of the Fund assets, up from 19 percent at the start of the fiscal year and up from just four percent in January 2006. The Board also has a program to encourage 10 3/31/10 - WHOLE - BILL 100115, etc. investment managers to execute their trades through women and minority-owned and local brokerage firms. In Calendar Year 2009, percent of eligible equity 6 trades were executed through these 7 brokers. 8 The Board is currently in the 9 process of completing an asset allocation 10 study. Expectations are for a low return 11 investment environment for the 12 foreseeable future, which will make it 13 challenging for investors to achieve 14 their target rate of return. 25 in February 2009. The lower assumption rate provides a more realistic return expectation and will allow the Fund to take less risk.
It is the goal of the Board of Pension's staff to continue to provide education and improved services to its members, and I respectfully request your approval of 11 3/31/10 - WHOLE - BILL 100115, etc. this projected budget.
Thank you. Mr. Kidwell, how many money managers does the Board of Pensions have? MR. McDONOUGH: I'll take that question, if it's okay.
Thank you. MR. McDONOUGH: We have in excess of 100 investment managers. I'd be happy to provide a list of those managers.
That would be wonderful. Could you also provide us with the fees they earned in 2009 and their estimated fees for Fiscal 2010? MR. McDONOUGH: Yes, I can.
As part of the Fiscal 2010 budget process, the City asked the State for changes in the City's pension calculations. Can you explain these changes and their impact to 12 3/31/10 - WHOLE - BILL 100115, etc. the Pension Fund? MR. McDONOUGH: I can cover the primary changes that were requested. The first relates to the asset valuation method. Investment gains and losses are smoothed over a ten-year period prospectively, beginning with investment returns from July 1, 2008 through June 30, 2009. This was a change from a five-year smoothing period prior to that. For the actuarial funding method, the amortization period of actuarial gains and losses was extended from 15 to 20 years. There was a Fresh Start re-amortization of the unfunded liability for a 30-year period. So they were the three primary changes.
Thank you. You are requesting $200,000 for payments to other funds. What are the services the Pension Fund receives for 13 3/31/10 - WHOLE - BILL 100115, etc. this payment?
The other funds, as I understand it, are the Department of Revenue that handles our pension contribution receipts and payments, the Revenue mailroom, Public Property for assisting us in moving any furniture or equipment that we need to have moved throughout the office. And the other two big ones are HR, Human Services, and the Finance Department that does all the accounting for the Board of Pensions and Retirement.
Thank you. I have another question that one of my staff asked. Who do we call once you leave for information?
Well, Council President, I brought the entire Pension administrator staff with me today so you can get familiar with their names and faces. Starting on my right here is Dave Fegan, Teresa Gray, Yvonne Nock, Shamika 14 3/31/10 - WHOLE - BILL 100115, etc. Taliaferro and Leontyne Freeman. They are well schooled in the pension benefit arena.
I think Mr. Dubow is trying to get your attention on something. He's to your left. Rob, did you want to add?
I'm also pleased to announce that the Board did conduct interviews for the Deputy Director spot, and I understand that a Mark Murphy will be coming in, I believe, on April 14th to be the new Deputy at the Board of Pensions and Retirement.
Great. I hate to see you leave. You're going to be a great loss, believe me. The Chair recognizes Mr. Greenlee. Sorry. Councilman.
I knew 15 3/31/10 - WHOLE - BILL 100115, etc. what you meant. Thank you, Madam President. Good morning, gentlemen. And, Mr. Kidwell, I join the Council President thanking you for all your years of service to the City. Just one basic question. At the bottom of of your testimony you talk about the applications for service-connected disabilities, 144 received, 82 approved. Just historically, is that about an average amount you get a year? Have those requests gone down, up over the years for service-connected disabilities?
That's about what it is? And 82 being approved, roughly I guess 55 to 60 percent, is that also about the same over the years?
I guess it depends on the Board a little bit, but 16 3/31/10 - WHOLE - BILL 100115, etc. is that basically the same? Okay. All right. Again, thank you. Thank you very much.
You're welcome. The Chair recognizes Councilman Green.
I too want to thank you for your years of service to the City and know that you will be missed. I'm sure we'll build a relationship with Mr. Murphy over time, but thank you. You testified that the Board has now imaged all active invested files and 75 percent of retiree files and now images all incoming mail. I think last 17 3/31/10 - WHOLE - BILL 100115, etc. year's testimony from Ms. Bell indicated that the Board had, quote, imaged all retired and vested files, as well as incoming mail. Has the Board taken additional steps to move documents and processes online, and have you achieved additional efficiency savings in the past year from these efforts?
As far as the imaged documents are concerned, if the testimony last year that all folders or files were imaged, perhaps Gwen Bell missed part of the file room. I'm not sure, but about percent to go. 17 Just to give you an idea on the 18 imaging process, when we first -- we had 19 an exposure to imaging with our 1099's 20 back in 2004, 5 and 6, which made the 21 effort to replace a pensioner's 1099 much 22 easier than the manual process, which was 23 run to a file cabinet, pull it out, make 24 a photocopy, put it back and mail a copy 25 to the pensioner. Now we can sit right 18 3/31/10 - WHOLE - BILL 100115, etc. at our desk and print it. With that exposure, it led to another level, what else can we do with imaging, and, of course, with the Division of Technology then being geared up to work with imaging, we moved forward to copy files and documents and mail as it comes in. The efficiency on that is simply that if an employee at the Board receives a call for any type of service, in the past we would have to essentially go order the folder from a person, wait for that folder to come to us, take a look at it before we could respond. Now we can do it almost immediately by clicking on the employee's imaged documents, scanning through those documents, and almost instantly provide an immediate response. So that's the efficiency increase. The other part of that was knowing that all incoming mail is immediately imaged, we no longer have to 19 3/31/10 - WHOLE - BILL 100115, etc. ask who has that document, which case worker is assigned that document, have you yet responded. So that's all available to us. So that's the efficiency. Online is a little more difficult. The development of our website, we certainly attempt to develop the website with adding forms to it. The most recent thing we've done, we've been able to put the annual reports out there, the valuations, the typical website of contacts and et cetera.
Oh, I did. You're right, now that I look at my question, but that's good enough. I appreciate that. With respect to the number of people who used to perform the tasks that were all paper centric, have you been 20 3/31/10 - WHOLE - BILL 100115, etc. able to achieve efficiencies in terms of personnel who used to have a very paper-intensive process as a consequence of going 75 percent paperless?
Well, we are still a manual shop when it comes to the calculation of retirement benefits.
I'm going to get there. I'm just talking about the efficiencies that have existed.
The efficiencies are as I mentioned. In my mind, it allows me immediate access and anybody in the staff for customer service, and to me, that has always been extremely important to our staff.
But what you described was a far more efficient way of addressing concerns and other things in customer service, and typically in private industry, what would happen is you'd have fewer people do it and be able to do it just as well or better when you get that. And, in fact, over the last 21 3/31/10 - WHOLE - BILL 100115, etc. two budget years, you have shrunk the number of people who performed that.
By a few. So my recollection is, over the past couple of years it's like four to six people.
Okay. Well, that's a pretty good return. With respect to going forward, in the last two budget years we've heard about the plan to reduce current pension and payroll systems, and each year funds are appropriated for that purpose, but it doesn't seem like much progress is made. Last year the Board testified that DOT recommended replacing the current system. The Board was requesting information to locate the best Oracle-based system. In the interim, a Pension Active Database would be developed with DOT's help and 1.6 million was in the FY10 budget for a 22 3/31/10 - WHOLE - BILL 100115, etc. new system. This year's testimony is almost identical. DOT is assessing the current pension payroll system to determine the best solution. In the interim, a Pension Active Database will be developed with the assistance of DOT and the same 1.6 million is in the budget for a pension payroll system. So I'd like to get a sense of the problems the Board has had in implementing these changes.
Well, the implementation, we have budgeted money, as you know, over the past few years. The challenge has been to, I guess, from the Division of Technology on selecting the correct approach to implementing a new system, whether it be a stand-alone pension system, an integration system with HR and Finance so that the core system contains all documentation for City employees, which means that if HR needs something, they can reach out into that core and pull it out. Pension needs 23 3/31/10 - WHOLE - BILL 100115, etc. a piece of that in there so we can pull it out. So I think the powers of DOT are still assessing the right approach to that.
Okay. So with respect to the 1.6 million, how much was budgeted for the Pension Active Database and how much of that was going to shift to likely PeopleSoft to manage these issues?
The entire 1.6 is for PeopleSoft. Within our contracts, we have an IT group, and the programmers under that consultant contract hopefully will be the ones that develop the Active Employee Database, working with Pension staff and other departments that need to come into the loop.
How much are you spending on the Pension Active Database?
The one consultant, probably about $65 per hour 24 3/31/10 - WHOLE - BILL 100115, etc. for that consultant. He's a new hired consultant, so he's just coming up to speed now with the current pension system, and he will be sitting down with staff to develop whatever shelves and fields and screens, et cetera, that are needed to give us what we consider an Active Employee Database, which means that we can look at it and not only will it give us your total credit service, City and other, also calculate your average final compensation and be able to generate a pension estimate online, and the ultimate goal obviously is to generate the benefit payment calculation final, what we would call the final calculation. So that's ultimately --
It would be 25 3/31/10 - WHOLE - BILL 100115, etc. to have it calculated by the system without manual --
And how much staff time is spent on manual calculation of pensions?
From beginning to end, I would say somewhere about 3.5 hours per pension calculation.
Beginning user to approval. From the counselor, who has the case that has to calculate the pension, peer review, supervisor sign-off and then approval within the system, about 3.5 hours.
But how many people are involved in those 3.5 hours? In other words, peer review, it sounds 3/31/10 - WHOLE - BILL 100115, etc. like there's a couple people sitting around, not just one person. So in terms of hours of everybody involved.
So let's do it this way. Let's start with a retirement appointment. Forty-five minutes for the retirement appointment where the employee comes in, sits down with a pension counselor and they walk through the retirement process, which would be your pension benefit, your survivorship, fringe benefits, health and welfare, medical, federal taxes, direct deposit, the estimated pension calculation, sign-off of all the forms by that employee. Employee leaves the office, pension counselor then does final calculation, which means that we may have to wait a pay period or two for final earnings to be posted and have the final quote, we've got the complete record, let's put pencil to paper. We have to extract out the three highest years of earnings, which is a manual calculation, 27 3/31/10 - WHOLE - BILL 100115, etc. convert -- calculate credit of pension service manually, convert the service to a multiplier, arrive at the monthly benefit, determine -- take a look at the survivorship option. If there's an actuarial reduction, that requires another calculation. Ultimately we get to the bottom line, is the monthly benefit. So that counselor will sign off and pass it on to another counselor for peer review to make sure that what she did or he did is --
Let's say 45 minutes for the interview, 45 minutes for the calculation. Peer review would be probably --
Only if there's a mistake and it has to be returned, how about we do that?
Yeah. So how many people retired last year or how many times did this calculation have to be done?
Thirteen hundred and thirty-one times four is, what, 5,200 hours?
Fifty-three hundred. So full-time equivalents, that's like two and a half people, almost three full-time employees on a yearly basis doing nothing but pension calculations by hand?
So how much 29 3/31/10 - WHOLE - BILL 100115, etc. will this cost to implement? I mean, we're paying somebody $65 an hour. How long is it going to be before we get this done? In FY09, Bell's testimony was, Unfortunately, I have to admit that we're still calculating pensions by hand, et cetera, et cetera. We're two years from that time. This was the FY09 budget, so in '08. We're two years from there and still this hasn't been done even though it has the potential to save us $180,000 with fringe a year?
I could not begin to give you a guesstimate. I only can tell you that since 2004 the Board of Pensions has attempted to acquire an Oracle-based system, be it through PeopleSoft or another vendor. It is not an inexpensive proposition.
No, I understand, but this interim step, the 30 3/31/10 - WHOLE - BILL 100115, etc. pension data system, which is --
That's been dragging on, quite frankly, Councilman, since we -- 1994, quite frankly, is when we first asked for an Active Employee Database.
So what's the problem? I mean, do you need more resources to get it? Do you --
How much would it cost to just get the calculation taken out by hand into electronic? Forget the PeopleSoft.
From start to finish with one programmer, probably 18 months.
So why are we doing one programmer rather than just put an RFP out on the street and let somebody come in and solve our problem? 31 3/31/10 - WHOLE - BILL 100115, etc.
Because right now we've -- our approach has been to try this one programmer along with the business side of the staff to develop this database.
But in theory, according to Allan Frank's testimony, we're going to have the full PeopleSoft system which will do this anyway and we won't need the interim step.
Well, that has always been the conflict, Councilman. Do we move forward with creating the Active Employee Database or do we sit tight and hope that an Oracle system comes through. So every time we approach the Active Employee Database, it is, We're moving forward with PeopleSoft, put that on the back burner for now.
The vendor goes away, we bring forth the Active Employee 32 3/31/10 - WHOLE - BILL 100115, etc. Database. So it's been a give and take. So that's essentially why we are where we are today.
Councilman Green, we have other Councilpeople who --
Thank you. Act 44 required the creation of a Special Commission to conduct benefit plan studies. All of Philadelphia's current -- under creation pension plans. The first study is due in September 2011. My understanding is a Special Commission was scheduled to have its first meeting recently. Can you update us on the status of the Commission and then talk about what you normally do in the course of the year anyway to conduct benefit plan studies in the normal course? 33 3/31/10 - WHOLE - BILL 100115, etc. (Witness approached witness table.)
The Special Commission was established under the Act. It had its first meeting within the last few weeks and kind of just laid out kind of its basic operating rules, and I think its next meeting is scheduled in May.
The Act says that the Special Commission should do a report and the report should lay out a series of comparisons and analysis of benefits.
Okay. I mean, we have that actuarial data available to us now, don't we?
Some of the data is data that we have available; some of it is different in that it's comparisons 34 3/31/10 - WHOLE - BILL 100115, etc. with other places. So there's some things that we do have, some things that we don't that would be new work for the Special Commission.
So with respect to that, I guess the question maybe for the Special Commission and maybe for the Board of Pensions and Retirement itself is, why do we have a Board of Pensions and Retirement? In other words, why don't we transfer our management of the money to the State and get rid of the overhead? Why would we keep this overhead on our books?
There was -- during the Act 44 process, there was a suggestion that administration of the funds should move to a state agency. We had some meetings with people from that agency. They determined that they could not manage our funds for us.
Because they were not able to take on something of our 35 3/31/10 - WHOLE - BILL 100115, etc. size. They're smaller than we are.
Well, yeah, the municipal one is, but I'm talking about -- there's no reason why the regular state pension system can't handle our funds, which would significantly reduce our costs. Their costs are far less than us in terms of money management, et cetera, because of the -- it costs us more to manage our system because we are a smaller fund than an $18 or $40 billion fund. Combined with the State system, we would reduce our costs and increase our return over time.
Well, there are years when their return is better. There are years when it's worse. They did worse than we did last year during the turndown, and if they had been investing our money then, we'd be in a worse position now than we are.
In all the years leading up to that, they did better. 36 3/31/10 - WHOLE - BILL 100115, etc.
In fact, our investments do pretty well. In terms of comparison to other large pension funds, we rank very highly. So I'm not convinced that moving to them would necessarily increase our returns.
Decrease our General Fund costs? It would depend what happened with things like earnings. If earnings went down or losses were up like they were last year, then our costs would actually go up.
Well, that's looking at half of the equation. You have to look at costs and return. If our cost was $200,000 lower but our returns 37 3/31/10 - WHOLE - BILL 100115, etc. were lower and our liability went up, that would not be a positive for the General Fund.
But you're not suggesting that there's no scenario where the State could take over our fund. We could agree to a 30-year level payment into that fund and then, for example, absolve ourselves of future responsibility, essentially a back-door pension obligation bond, with the State taking the downside risk with respect to pension holders, et cetera. I mean, there's lots of creative things we can look at here.
Yeah. I mean, if the State was willing to assume the risk of our Pension Fund; is that what you're saying?
No. I'm saying with us making a dedicated payment to them, just like we have to now, over, say, the next 20 or 30 years that would essentially make it the equivalent of 80 38 3/31/10 - WHOLE - BILL 100115, etc. percent funded or 90 percent funded because of the level of payment we make -- and we can figure that out actuarially -- why wouldn't we want to transfer that risk if we could?
But that payment changes depending on what happens with our earnings.
So if we made an agreement with them where they said, Okay, you're locking that in, they would essentially be assuming the risk.
I think that's a fairly complicated set of negotiations we'd have to have with them. I mean, obviously you could find a number where that worked for us.
There were a number of discussions last year during Act 44 where the State was looking at options 39 3/31/10 - WHOLE - BILL 100115, etc. where they would try -- and those discussions, as I said, the entity that they wanted to have take us over, it didn't work.
So we haven't really gotten to the level of whether or not there could be some sort of bargain there with the big pension system in the State?
We haven't had that kind of discussion with them about whether they're willing to assume the risk of our Pension Fund.
Thank you. The Chair recognizes Councilwoman Tasco.
Good morning. Don't go away, Mr. Dubow. Mr. Kidwell, are you in the DROP? 40 3/31/10 - WHOLE - BILL 100115, etc.
The powers that be say that I've completed my four years in DROP and I'm exercising my irrevocable commitment.
I've been advised that I've exercised my irrevocable commitment to retire in four years and I will not be reemployed.
So who will be the Director? 41 3/31/10 - WHOLE - BILL 100115, etc.
There's an ongoing search for Director. We're hoping to bring someone in obviously as soon as we can.
I may be doing this calculation all wrong, so you can tell me. In your number of retirements, you had in '09 1,341 retirements, and I guess to date in FY10 you have 1,096. Mr. Dubow, does that represent vacancies in the Administration, those retirees?
Those retirements probably do represent positions that become vacant during the year. I mean, there are other reasons that people leave, but --
No, that's all right. I'm just trying to figure out do we have --
So we have that number of vacancies or would there be a process where those jobs are being refilled?
Well, we still -- at any given time, there are always a number of vacancies, so some of those are vacant and some of them would have been filled.
Okay. Your OEO goals, or equal opportunity goals, when you talk about the minority or disadvantaged participation and the percentage of people who are working as possible managers, what percentage does that represent, minority -- and I know women are included, but let's say African American, Asian, Latino in relationship to women. MR. McDONOUGH: We do not have 43 3/31/10 - WHOLE - BILL 100115, etc. the breakdown with us, but we'd be happy to provide it.
You're welcome. The Chair recognizes Councilman Goode.
Thank you, Madam President. Let me pick up where Councilwoman Tasco left off. Your goal for Fiscal Year '11 is 16.6 percent in terms of disadvantaged business participation. What was your goal for Fiscal Year '10, this year? MR. McDONOUGH: The goal was 16.1 percent.
I doubt the goal was 16.1 percent. The actual number 44 3/31/10 - WHOLE - BILL 100115, etc. may have been 16.1 percent. What was the goal? MR. McDONOUGH: I'm sorry. You're right, it was the actual number. I don't know what the goal was.
What was the goal for Fiscal Year '09? MR. McDONOUGH: I'm not aware that we had any specific goals.
What was the goal for Fiscal Year '08? MR. McDONOUGH: As I said, I'm not aware of any specific --
The goal for Fiscal Year '08 was percent. Do you 17 know what the actual number for Fiscal 18 Year '08 was? 19 MR. McDONOUGH: For 20 non-investment contracts, it was less than one percent.
It was 0.05 percent. It was one-half of one percent. MR. McDONOUGH: If you incorporate investment contracts -- 45 3/31/10 - WHOLE - BILL 100115, etc.
I'm using the City's numbers. MR. McDONOUGH: Okay. I was going to give you some additional information.
Go ahead. MR. McDONOUGH: Including investment contracts for Fiscal '08, 10 percent of these for investment services 11 went to women and minority-owned firms 12 for Fiscal Year '08. 13
And everything else was 0.05 percent? MR. McDONOUGH: That's correct.
So let's break it down. In terms of investment fees, it was 13 percent in Fiscal Year '08. It's about 14.8 percent now. I'm assuming that's based upon capacity and availability of disadvantaged firms? MR. McDONOUGH: Yes, I think that's fair. We have a public RFP process and select firms based on --
The question 46 3/31/10 - WHOLE - BILL 100115, etc. is, where did the 13, percent number come from? MR. McDONOUGH: That's the percent of -- of all the investment management fees we paid, that's the percent that we --
That's the 9 percentage that was given, but is that 10 the percentage that should have been set 11 as a goal or is there a higher goal that 12 could have been set? Who decided not 13 just based upon RFPs, but is there -- 14 well, let me ask a different question. The better question is, has the capacity of disadvantaged firms increased over the years? MR. McDONOUGH: When you say "capacity," are you referring to the amount that we've paid to these firms?
I mean, the availability and I mean the capacity to do more work. MR. McDONOUGH: I don't know if the capacity in terms of the amount of 47 3/31/10 - WHOLE - BILL 100115, etc. firms out there has changed.
Then what is your 16.6 percent goal for Fiscal Year '11 based upon? MR. McDONOUGH: That's actually for non-investment contracts, the goal. That's based on --
I thought that was combining investment contracts and other contracts. MR. McDONOUGH: No. The testimony states it's other than investment manager contracts.
Just break it down, then. The goal for investment contracts, what is that based upon, and the goal for non-investment contracts, what is it based upon? MR. McDONOUGH: We do not have a goal for investment contracts because they're asset-based fees and we cannot predict what we will be paying in fees to the firms we have under contract in future fiscal years. 48 3/31/10 - WHOLE - BILL 100115, etc.
But somehow it ends up to be or percent every 4 year? 5 MR. McDONOUGH: Well, that's 6 what it's been the last several years, 7 but if you go back to -- I don't have it 8 with me, but in 2006, we only had about 9 three percent of the Fund's assets 10 invested with women and minority-owned 11 firms. So the number would have been 12 much lower than 13 percent. Today we 13 have 20 percent of the assets with women 14 and minority-owned firms.
Okay. And have you done any analysis of what capacity actually exists out there and whether that number is a credible number or not? Obviously three percent was extremely low. MR. McDONOUGH: I agree. I think having 20 percent of our assets with women and minority-owned firms is a much greater percentage than those firms represent of the overall industry. 49 3/31/10 - WHOLE - BILL 100115, etc.
Do you know that? MR. McDONOUGH: I don't know that I can give you a specific number, but based on our experience and our research, I believe those firms represent a much smaller percent of the industry.
Please forward that research to the Chair. And if you are that familiar with the research, you should be able to state it. That's actually how we do it. We calculate availability, and availability should match utilization. MR. McDONOUGH: I'd be happy to provide --
Or else you have disparity. For non-investment contracts, how did you establish your goal?
The goal for non-investment contracts is that of the OEO, and I believe it's percent. We 25 try to attain those by the -- mostly 50 3/31/10 - WHOLE - BILL 100115, etc. through the contracts available through our medical panel and the speakers that are engaged at our retirement seminars.
My question is, where specifically did the number come from?
The 16.6 comes from the available non-investment contracts, which total approximately $2,058,000, of which 341,400 are for minority, women and disabled-owned firms, which equals 16 --
I read it. It says based upon the availability for contracting opportunities for contracts other than investment managers.
My question is, what analysis was done to determine that goal? 51 3/31/10 - WHOLE - BILL 100115, etc.
I'm not aware of any analysis that was done for the investment speakers or the medical panel.
So's not necessarily a credible number in terms of what the goal should be?
The 16.9 is a credible number because it's actually the number that is the number. That is the current number, 16.9.
Because it's the current number does not mean it's a credible goal.
The Mayor would not be setting an overall Administration goal that goes from 18 percent overall to 25 percent if he did not believe that contracting opportunities could be expanded. So just because the number is 16.6 or 16.9 percent now doesn't mean that should be the goal. My question is, what analysis 52 3/31/10 - WHOLE - BILL 100115, etc. went into what the goal should or should not be?